The Competition Commission of India (CCI) released the Draft Competition Commission of India (Settlement) Regulations, 2023 (Settlement Regulations) and the Competition Commission of India (Commitment) Regulations, 2023 (Commitment Regulations) in line with the objective of reducing litigation and ensuring quicker market correction. The timelines for uploading public suggestions are by now over and the CCI is expected to be fully engaged in finalizing the same.

The Competition (Amendment) Act, 2023 (AmendmentAct) introduced Section 48A and Section 48B to the Competition Act, 2002 (Act) to create a settlement and commitment mechanism respectively, to enable enterprises against whom an inquiry is initiated for an alleged contravention of Section 3(4) and Section 4 of the Act. It is expected that these provisions will become effective soon after Regulations are notified by the CCI.

Filing of Settlement and Commitment Application

The Draft Regulations provide for a hefty fee for submission of settlement/commitment application by the applicant, while under Lesser Penalty Regulations, the leniency applicant is not required to pay any filing fee along with the leniency application. The application must be filed along with the payment of a filing fee, and the quantum of such filing fee shall be between INR 5,00,000/- and INR 50,00,000/- linked with the turnover of the Applicant. In addition, the Draft Settlement and Commitment Regulations provide that the applicant would be required to make payment to monitoring agencies if so, appointed by the CCI, and in the event of non-compliance, the Applicant will be required to pay for cost of litigation as well as cost towards misrepresentation. In addition, the Settlement applicant may be required to settle the Compensation Application. All these monetary burdens are likely to dissuade parties to opt for settlement with the CCI. It is hoped that CCI will give priority to "Settlement" rather than garnering competition fund.

Timeline for Submission of Application

The Draft Regulations provide the timeline for applying under the settlement mechanism. This application must be filed within 45 days of receiving the investigation report issued by the Director General (DG) of the CCI. The entire settlement proceedings must conclude within 120 days of receiving the settlement application, with the possibility of extensions upon recording reasons. In case of commitment, an application must be filed within 45 days of receiving the order passed under Section 26(1) of the Act by the CCI, which can be extended up to 30 days. The commitment proceedings are proposed to be completed within 90 days of receiving the commitment application. Extensions may be granted if necessary for concluding commitment proceedings after such period. The enquiry into the applicant will be put on hold until the CCI arrives at a final decision regarding the commitment application. It would be prudent to provide more flexibility in timelines keeping in view of principles of natural justice.

Settlement Discount

The settlement discount/concession cap up to 15% of the leviable penalty, will dissuade the potential applicant from coming and offering to settle with the CCI and get the inquiry closed. Thus, the settlement discount cap of 15% needs to be stepped up so that there is more flexibility with the CCI to allow higher concessions/discounts in appropriate cases. This suggestion will de facto enable the ease of doing business and living on which India is currently focussing and minimise litigation and correction of markets at the earliest.

The CCI will determine the settlement amount based on the penalty guidelines which are yet to be notified by the CCI. It is expected that CCI will first issue the penalty guidelines and these will be followed by capping of settlement concession. Evidently, the success of settlement mechanism is largely dependent upon the penalty guidelines to be issued.

Furthermore, cartels, which are considered to be a more egregious contravention, a leniency Applicant can avail of concession up to 100% (50% in case of second marker and up to 30% to third marker and subsequent applicants) of leviable penalty, under the Lesser Penalty provisions. Further, one can have non benefit of additional concession by availing of concession of "Leniency Plus". As against these provisions, violations of Sections 3(4) and 4 of the Act are being offered merely a reduction of up to 15% of the maximum leviable penalty. The trident objective of (a) ease of doing business ,(b) to reduce litigation, and (c) correction of the market at the earliest is more likely to be achieved if a cap limit of 15% concession in the penalty to the settlement applicant is raised substantially and the CCI is armed with power of granting concession without any cap.

Non-compliance of Settlement/ Commitment Order

The Draft Regulations provide that in the event of non-compliance of the Settlement and Commitment Regulations, the CCI may revoke its order, thereby imposing a cost of litigation which may extend to INR 1,00,00,000/- and initiate the proceedings. The decision to accept/reject the settlement and commitment application lies with the CCI, and there is neither a provision for review nor that of appeal against the said order. Also, there is no mandate on the CCI to give an opportunity of hearing to the applicant before passing an order of rejection. In the above scenario, the proposal to allow CCI to use material supplied by applicant if the application is rejected or the settlement amount is not agreed to by the applicant seems to be inconsistent with the principles of natural justice which CCI is mandated to follow in terms of Section 36 of the Act. Given the bar on the appeal against such orders, it should be advisable for the CCI to hear the Applicant before it passes a rejection order and determines the settlement amount.

Need for Pre-Filing Consultancy

The Draft Regulations currently do not provide any commitment/ settlement informal meeting with the CCI (before filing of the offer). CCI is still a young regulator and, awareness level of competition law is at its low ebb. Moreover, the focus must be on correcting the market at the earliest rather than allowing its continuation and later imposing a hefty penalty. Prudence suggests that these Regulations establish pre filing consultation mechanism (on a no-name basis and without fees). Such a mechanism already exists and functions very well in the CCI as per the CCI Combination Regulations, 2011. The applicant should be allowed to seek consultation with the CCI (on a non-binding basis) in relation to likelihood of acceptance of its settlement and commitment application.

Application to Pending Cases

The Draft Regulations currently do not apply to cases pending before the CCI / DG where the stipulated timelines have lapsed. The objectives behind the proposed regulations are to ensure ease of doing business and to reduce litigation and so there is no reason to exclude the pending/decided cases under Sections 3(4) and 4 of the Act. The pending cases are of three kinds, namely: (i) cases where an order for investigation has been issued and investigation is ongoing- the parties in these cases can very well opt for commitment as the case may be; (ii) cases where investigation report has been received by the CCI and in turn shared with the parties and in such cases, the parties be given option to offer for Settlement notwithstanding when the parties received the Investigation Report; and (iii) cases where appeals are pending either before the appellate authority, i.e., National Company Law Appellate Tribunal (NCLAT) or the Supreme Court of India. For such cases, the CCI needs to consider coming up with a One-time Settlement scheme (in consultation with the Government) to halt the protracted litigation.

Inconsistency in Compensation Provision

The Draft Regulations stipulate that compensation claims under Section 53N of the Act can arise from Settlement orders. For this limited purpose, the Settlement order will be construed as a finding of contravention by a party. Under the Act, for an adverse finding, enquiry is a condition precedent and finding of "violation" are necessary for award of compensation before the NCLAT. The proposed Regulations envisage that there shall be no finding on the contravention of the Act, yet the compensation application will be entertainable. Thus, there is an apparent inconsistency that must be resolved.

Confidentiality

As per the proposed Regulations, the CCI will share a 'non-confidential summary' containing, inter alia, details of the order passed under Section 26(1) of the Act, the competition concerns, alleged contraventions, and the settlement proposal/commitments offered by the applicant. However, no express right has been stipulated whereby the settlement/commitment applicant can claim confidentiality over its submissions. Since the applicant is expected to make elaborate disclosures, including confidential business information, applicant should be provided the right to claim confidentiality over their submissions in line with Regulation 35 of the Competition Commission of India (General) Regulations, 2009.

Key Takeaways

The proposed Regulations are inter-alia designed to facilitate the enforcement of the recently introduced settlement and commitment provisions in the Amended Act, streamlining processes relating to perceived vertical restraints and abuse of dominance cases. It is therefore crucial for the settlement and commitment system to maintain its viability as an option, striking a fair balance that benefits the CCI, businesses and other stakeholders. The approach needs to focus on preventing prolonged investigations and long drawn legal proceedings that can often extend over a decade and by the time finality is rendered, the issue loses its relevance as the landscape of competition in market, is ever evolving.

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